Problem:

PK Properties purchased a warehouse for $1.6 million ten years ago. Four years ago, the company repaired the roof at a cost of $220,000. Last year, the electrical wiring and lights were upgraded at a cost of $134,000. The annual taxes on the property are $28,500 and the rental income is $170,000. The warehouse has a current book value of $800,000 and a market value of $1.95 million. The property is totally debt-free. PK is considering converting the building into a discount retailer of bulk goods. The cost of the conversion would be $95,000 and could be started next month when the existing lease on the building expires. When analyzing the bulk goods option,

Required:

Question 1: What value should PK assign as the initial cost of the project?